In this Energy Brief, Daniel Ahn and Michael Levi model the potential consequences of substituting taxes on oil consumption for either higher nonoil taxes or reduced government spending, both as part of a larger deficit reduction package, and argue that doing so can improve economic performance while reducing oil consumption if done right.

[From Levi’s CFR blog:] The paper goes on to quantitatively explore the growth, employment, and oil consumption impacts of different ways of modifying deficit reduction packages using oil taxes. The paper is the first to look at oil taxes in the context of broader deficit packages; it’s also novel in that it looks at how oil taxes might perform in a weak economy.

In a Bloomberg View op-ed today, we explain some of the basic results, and provide some simple intuitive explanation for the paper’s conclusions that goes beyond what’s in the paper itself.